We are reaching the point now where there is no one left to turn bullish. The momentum is clearly strong but my model says it is time to back away and watch for some type of correction.
Earnings results continue to be flat to down as they are reported. The gap between last twelve
month results and future twelve month expectations is now more than 27% and it continues to grow.
This indicator continues to suggest 0% exposure this week.
Twelve month forward earnings are still trending higher as analysts obviously think things will improve as the year goes along and during the first quarter of 2014.
This indicator is still positive at this point with 100% exposure.
2013 estimates are my third indicator and they showed a slight increase last week. However, the uptrend is coming into question and it wouldn't take much to turn this indicator to neutral or negative.
For now, though, this indicator continues to call for 100% exposure.
Total exposure from the earnings factor is 67%, same as last week.
Rydex leveraged fund investors got still more bullish last week.
Exposure from this indicator remains at -10%, same as last week.
Small option buyers continued to move to a more bullish position. They are now at a neutral sentiment level.
Exposure declines to 50%, down from 65% last week.
NAAIM managers continued to move to a more bullish stance but not yet at extreme levels.
Exposure remains at 5% this week, same as last week.
When one of my sentiment indicators is maximum bearish and the other two are neutral or negative, I assign a sentiment factor of 0%, down from 20% last week.
Percentage of stock prices represented by net current assets remained the same last week so
exposure continues at 20%, same as last week.
Comparison of stock earnings yield to ten year treasury yield declined last week.
Exposure declines to 30%, down from 50% last week.
Total valuation exposure is 25%, down from 35% last week.
To combine these three factors, I multiply them together and then take the cube root. This
week, that number is 0%, down from 36% last week.
My comparison of yields on treasury bonds compared to lower quality corporates remained positive last week. I add 10% to account for this factor.
New highs - new lows on the Nasdaq are still positive.
I add 20% to account for this factor.
Total technical adjustments this week are +30%, same as last week.
After adjustments, total exposure for the week is 30% or, after rounding, 25% compared to 75% last
Richard Moore, CFA
With my wife in Hawaii